Investigation of the Relationship Between Life Insurance Growth and Economic Growth in Selected Countries of MENA Region

اقتصاد و توسعه منطقه ای

Article 9, Volume 28, Issue 21, October 2021, Pages 239-268   

Document Type: Original Article

DOI: 10.22067/erd.2022.69275.1022

Authors

Ali Tahmoorespur¹; mehdi behname^{* 2}; mahmood Hooshmand²; Hasan Tahsili²

¹Ph.D Student of Economics, Ferdowsi University

²Faculty of Economics, Ferdowsi University

Abstract

Extended Abstract
1- INTRODUCTION
Insurance is one of the useful tools of risk management to ensure the peace and comfort of people in the community. Considering the role of life insurance in helping people save and invest and its effective role in economic growth, we can understand the importance of this field of insurance in the economy of countries (impact on household economy in developed or developing countries). the purpose of this study is to investigate the relationship between growth of life insurance and economic growth in selected countries in the MENA region. Since there was no access to uniform statistics for all countries in the MENA region, the study was used on 13 selected countries in the region using balanced data for the period 1994-2017. In this study, in order to investigate the causal relationship between the growth of insurance industry activities and economic growth, the Demteresco and Herlein (DH) causality model has been used for the data panel.
2- THEORETICAL FRAMEWORK
Considering the important role of the insurance industry, especially life insurance in the economies of countries, the study of the impact and also the impact of life insurance on economic growth in previous research were studied, which are divided into two categories.
2-1- The Impact of Life Insurance on Economic Growth
Four factors (population, natural resources, investment and technology) play an important role in the process of economic growth, the most important of which is capital or financial resources. for this reason, access to financial resources is very important to increase economic growth. one of the most important prerequisites for economic growth in all countries is financial resources for productive investments. access to financial resources can be provided through various means such as foreign borrowing, sale of bonds, etc. but the best way to provide it is to use people's savings. insurance is one of the important channels of savings and important financial institutions, which in addition to providing security for economic activity, also plays a key role in providing investable funds.
The insurance industry leads to the development of investments in economic systems in two ways. on the one hand, by guaranteeing the coverage it provides, it reduces the effects of investment threatening factors that result in the expansion of investments, and on the other hand, insurance companies participate in various economic and commercial activities as investors from the resources at their disposal. this way in paving the paths that lead to the development of the country play an important role. the greater the share of insurance in the economies of countries (insurance penetration rate), the greater the impact on economic growth.
2-2- The impact of economic growth on life insurance
Studies have shown that there is a two-way relationship between economic growth and the growth of the insurance industry. in most studies, the per capita income index is considered as a proxy for economic growth. one of the factors that has a strong impact on increasing the demand for life insurance is the income of individuals. demand for life insurance increases as economic growth increases and, consequently, per capita income increases and, as a result, purchasing power increases. inflation also affects the demand for life insurance in two ways. first, inflation causes life insurance capital to be paid at a much lower real value than at the commencement date of the contract. in the context of inflation, if the insurance companies do not neutralize the negative impact of inflation on the real purchasing power of the insured capital by applying some appropriate methods, the purchase of life insurance policies will decrease day by day. as a result, it diverts people from the demand for life insurance and leads to safer or shorter-term investments. unemployment will have a negative impact on the demand for life insurance and, consequently, the growth of the insurance industry. according to research, one of the main motivations for buying life insurance is to protect family members against the early death of the breadwinner, and the amount of life insurance sales depends on the number of dependents on the breadwinner, which is called the dependency ratio (Campbell, 1980). With increasing population and increasing dependence on the breadwinner of the family, the risk of financial crisis of the family in the event of the breadwinner's death is felt more, so the need for insurance coverage in this area becomes more apparent.
 
3- METHODOLOGY
The main purpose of this study is to evaluate the causal relationship between economic growth and life insurance growth and their effectiveness. therefore, in order to investigate the causal relationship between the growth of life insurance activities and economic growth, the Demteresco and Herlein (DH) causality model has been used for the data panel. We first determined the effect of the economy and the insurance industry by examining the Demetresco Herlin causality test. then, in order to determine the effect of variables on each other, we used the pattern of simultaneous equations of panel data. to solve problems such as heteroskedasticity and heterogeneity, the research equations are estimated in three modes of primary model, resistant to heterogeneity and clustered (resistant to heterogeneity and heteroskedasticity) and in each of the mentioned models by two methods of estimators of instrumental variables (IV) and torque. Generalized Momentum (GMM) is used.
 
4- CONCLUSION & SUGGESTION
Undoubtedly, the economic growth of countries leads to higher per capita incomes. this increase in per capita income will increase the demand for life insurance and consequently the growth of life insurance will have a new impact on economic growth. in other words, with the increase in per capita income, we will see a double impact on economic growth. another indicator that affects the growth of life insurance is the level of education. the higher the level of education will cause the higher growth of life insurance. of course, this positive connection can be due to the increase in public awareness and, as a result, the effort to secure their families' future, as well as possibly the greater demand for urbanization. population growth, which has a positive effect on economic growth, can also be affected by per capita income index, life expectancy and education level. one of the important indicators that has a positive effect on the growth of life insurance is the good governance index. this index includes the index of accountability and the right to comment, political stability, the absence of violence / terrorism, the quality of regulation, the rule of law, the effectiveness of government and the control of corruption. undoubtedly, if the governments of this region pay attention to these indicators, we can expect them to face the growth of demand for life insurance as well as the growth of the economy.

Keywords

Economic Growth; Life Insurance; MENA; Causal Relationship

Supplementary Files

chkide 21.pdf

References

References

Antzoulatos, A. Tsoumas,C. & Kyriazis, D. (2008). Financial Development and Asymmetric Information.

Asadzadeh, S. & Naqibi, M. (2018). The impact of insurance development on economic growth in selected countries (with emphasis on the role of environmental institutions). Quarterly Journal of Applied Economics, 8 (26). ]In Persian[.

Azizi, F. (2006). Relationship between macroeconomic variables and demand for life insurance in Iran (1990-2004). Teacher of Humanities, 49(1): 135-150. ]In Persian[.

Chen Pei-Fen, Lee, C. & Lee, CF. (2012). How Does The Development Of The Life Insurance Market Affect Economic Growth? Some International Evidence. Journal of International Development، 24(7): 865-893.

Davidson, R. & Mackinnon, J. (1993). Estimation and Inference in Econometrics: Oxford University Press.

Lotfi, A.A. (2001). Relationship between income and insurance demand. Knowledge and Development, - (13). ]In Persian[.

Harrod R. F. (1939). An Essay in Dynamic Theory. The Economic Journal، 49(193): 14-33.

Lotfi, A.A. (2016). Investigating the effect of macroeconomic variables on individuals' insurance demand. Bi-Quarterly Journal of Monetary and Financial Economics: 34. ]In Persian[.

Hwang, T. & Greenford, B. (2005). A Cross-Section Analysis of the Determinants of Life Insurance Consumption in Mainland China, Hong Kong, and Taiwan. Risk Management and Insurance Review، 8.

Mohagheghzadeh, F; ShirinBaskh, Sh. Najafizadeh, A. & Daqiqi Asli, A. (2016). Impact of economic growth on life and non-life insurance. Applied Economic Studies of Iran (Applied Economic Studies), 6 (23). ]In Persian[.

Kjosevski, J. (2012). The Determinants of Life Insurance Demand In Central and Southeastern Europe. International Journal of Economics and Finance، 4.

Mehrara, M. & Azam Rajabian, M. (2007). Demand for life insurance in Iran and oil exporting countries. Economic Research, - (74). ]In Persian[.

Levine & Ross. (2005). Finance and Growth: Theory and Evidence (Vol. 1A): Elsevier B.V.

Momeni Vesalian, H; Daqiqi Asli, Ar & Al-Ahmadi (1392). The effect of inflation on life insurance and its neutralization strategies. Financial Economics, 23 (7): 31-60. ]In Persian[.

Lim Chee , C. & Haberman, S. (2011). Macroeconomic Variables and the Demand for Life Insurance in Malaysia ABSTRACT.

Noraee Motlagh, S; Lotfi, F; Mohajerzadeh, Z; Abolghasem Gorji, H & Zendegiani Kho, H. (2016). Investigating the Determinants of Demand for Life Insurance in Selected Countries. Health Management, 19 (63). ]In Persian[.

Merton, R.  & Bodie, Z. (2004). The Design of Financial Systems: Towards a Synthesis of Function and Structure. National Bureau of Economic Research, Inc, NBER Working Papers، 3.

Olayungbo, D. , Akinlo, A. & Mcmillan, D. (2016). Insurance penetration and economic growth in Africa: Dynamic effects analysis using Bayesian TVP-VAR approach. Cogent Economics & Finance، 4: 1150390.

Outreville J. Fran, Xe & Ois. (1996). Life Insurance Markets in Developing Countries. The Journal of Risk and Insurance، 63 (2): 263-278.

Amin, M. I. & Kamalkhani, S. (2007). Economic, social and cultural characteristics of Iranian families and its impact on the life insurance market. The 14th National Conference and the First International Conference on Insurance and Development "Micro Insurance Development Strategies, Tehran. ]In Persian[.

Babbel, D. (1985). The Price Elasticity of Demand for Whole Life Insurance. Journal of Finance، 40(1): 225-239.

Outreville J. François. (2011). The relationship between insurance growth and economic development - 80 empirical papers for a review of the literature: ICER - International Centre for Economic Research.

Pietrovito, F. (2009). Financial Development and Economic Growth: A Theoretical and Empirical Overview. SSRN Electronic Journal.

Simona, D. (2014). Life and non-life insurance demand: The different effects of influence factors in emerging countries from Europe and Asia. Economic Research-Ekonomska Istraživanja، 27: 169-180.

Sliwinsk, A. , Michalski, T. & Roszkiewicz, M. (2013). Demand for Life Insurance—An Empirical Analysis in the Case of Poland. The Geneva Papers on Risk and Insurance - Issues and Practice, 38 (1): 62-87.

Bahadori Jahromi , P & Goudarzi, H. (2014). The Study of Co-Integration and Casual Relationship Between Macroeconomic Variables and Insurance Penetration Ratio. Asian Economic and Financial Review,4(7): 853-863.

Peykarjo, K. & Ghaffari, F. & Shahani, F. (2011). The effects of macroeconomic variables on life insurance demand in the countries of Mena region. Applied Economics, 2 (No. 5): 19-52. ]In Persian[.

Baum Christopher, F. , Schaffer Mark, E & Stillman, S.(2007) Enhanced Routines for Instrumental Variables/Generalized Method of Moments Estimation and Testing. The Stata Journal، 7(4): 465-506.

Esfandiar, J. (2011). Insurance and economic growth in Iran. Quarterly Journal of Economic Research and Policy: 28. ]In Persian[.

Baum, C. , Schaffer, M. & Stillman, S. (2003). Instrumental Variables and GMM: Estimation and Testing. Stata Journal، 3: 1-31.

Jahani, F. & Dehghani, A. (2015). The Impact of the Expansion of the Insurance Industry on the Economic Growth of the Countries of the Mena Region (1997-2010). ]In Persian[.

Shahabadi, A; Ahmadi, M. & Moradi, A. (2018). The interaction of financial development and economic freedom on insurance penetration in selected countries failed to develop the insurance industry. ]In Persian[.

Bednarczyk T. (2014). Insurance development as a factor in long-term economic growth. Insurance Review، 35: 19.

Browne Mark J & Kim, K. (1993). An International Analysis of Life Insurance Demand. The Journal of Risk and Insurance، 60(4): 616-634.

Shahbazi, K; Bashir Khodaparasti, R. & Ehterami, M. (2013). The Relationship between the Development of Life and Non-Life Insurance and Economic Growth in Iran: Application of the Border Test Approach. ]In Persian[.

Campbell, R. (1980). The Demand for Life Insurance: An Application of the Economics of Uncertainty. Journal of Finance، 35: 1155-1172.

Safari, S; Mahdavi, Gh & Soltani, H. (2011). Analysis of the relationship between insurance industry expansion and economic growth in selected developing countries (Algeria, Indonesia, Malaysia, Pakistan, Turkey, Philippines, Egypt and India) and its comparison with Iran during the period 1976-2009. Financial Economics (Financial Economics and Development), 5 (15). ]In Persian[.

Cargill, T & Troxel Terrie, E. (1979). Modeling Life Insurance Savings: Some Methodological Issues. Journal of Risk and Insurance، 46: 391.

Samimi Jafari, A. & Kardgar, I. (2006). Does insurance development support economic growth? Quarterly Journal of Economic Research: 23. ]In Persian[.

Liedtke Patrick M. (2007). What's Insurance to a Modern Economy? The Geneva Papers on Risk and Insurance - Issues and Practice، 32(2): 211-221.